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Exchanges take first strong step on breach of disclosure norms
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Both NSE and BSE last week named 250 companies that were found to be non-compliant with the SEBI’s guidelines on disclosures. This list was based on a qualitative parameter, instead of fine based announcement as has been the norm earlier. This is the first time such an list has been provided by stock exchanges.

 
The list contained Nifty 50 companies like Adani Ports, IOC, Power Grid and BHEL as well. The cumulative fine imposed by the NSE on the 250 companies is around 28.4 mln rupees. 
 
It is interesting to note that not only Nifty 50 companies but even PSU companies were included this time around in the list.  Many of the PSU officials in the past are known to reveal price-sensitive information at public events without disclosing them to stock exchanges first. The fact that the exchanges have named these PSUs can also be interpreted that disclosure standards cannot be different for state-owned enterprises and private sector companies.

On top of this, the NSE has said that two consecutive quarters of breach will lead to shifting of the stock to the trade-for-trade segment and subsequently, suspension in trading. This is a welcome step in strengthening the disclosure to exchanges by companies and making them more accountable.

For example : Britannia Industries, which perhaps out of naivety did not see merit in why the arrest of its director Ness Wadia in Japan for illegal possession of narcotics should be disclosed to investors. SEBI ( Listing Obligations and Disclosure Requirements state  - LODR, 2015) has mandated that companies disclose without any application of materiality arrest of key managerial personnel or promoter.  But this was not followed in this case. Britannia Industries is now reportedly seeking legal advice on whether the Wadia Group scion can continue as a director of the company.
 
In conclusion, we note the following 3 pertinent points:
 
1.  Companies believing that disclosure requirements are subjected to their interpretation of the same and NOT the spirit of the regulation need to be fined more strongly to have more consistent disclosure norms.
 
2.  It is true that regulatory costs should not become so overbearing that it causes blatant disregard among those regulated, but it should also not be so underwhelming that companies feel that the cost of non-compliance is too insignificant to care about.
 
3. Fine imposed by NSE is mere pocket change for some MNCs.  It is ironic that this recent fine by NSE was also not "material" enough to be disclosed by the companies to the shareholders. That attitude needs to be overhauled to have more transparency in disclosure norms.
 

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